Qualified Retirement Savings Contribution Credit

 The Credit for Qualified Retirement Savings Contribution is a one-page tax form used to calculate the amount of an individual, head of household, or married couple's saver's credit.  This credit directly reduces the amount of taxes owed to the taxing authority.  The credit is also known as a saver's credit and uses IRS Form 8880.

The IRS offers the saver's credit to encourage low-income individuals to contribute to qualified retirement plans. Eligible qualified retirement accounts include traditional IRAs and ROTH IRAs, as well as 401(k) plans, 403(b) plans, and 457 plans.  Taxpayers may take advantage of this credit even when claiming deductions for their IRA contributions.

Eligible participants must meet adjusted gross income (AGI) limits. As of 2018, the credit is available to a single taxpayer with incomes up to $31,500. Heads of household with incomes up to $47,250, and married couples filing jointly with incomes up to $63,000 are also eligible.  Additional eligibility requirements include the claimant being at least 18, not claimed as a dependent on another person's tax return, and not a full-time student.  Self-employed persons are also eligible for the credit.

Form 8880 must accompany a  1040, 1040 A, or 1040-NR tax return. To complete the form, taxpayers need their adjusted gross income (AGI) and the totals of their contribution to a qualified plan. Credits range between 10% and 50% and are dependent on the AGI. The maximum credit is $2,000 ($4,000 for married persons filing jointly) for IRA contributions.

For example, a single taxpayer with an income of $19,500 and IRA contributions totaling $2,000 may claim 20% of the $2,000, or $400.  It is important to note that rollover contributions are not eligible. Also, distributions from a qualified plan may reduce the amount claimed for the credit.  Each year, the IRS updates income and contribution limits, which is on its website, www.irs.gov.